Performance appraisal serves many organizational objectives and goals. Besides encouraging high level of performance, the evaluation system is useful in identifying employees with potential, rewarding them equitably, and determining employee needs for development. All these activities are instrumental in achieving corporate plans and long-term growth, typical appraisal system in most organizations have been focused on short-term goals only.
From the strategic management point of views, organizations can be grouped under 3 different categories as defenders, prospectors and analyzers.
Defenders: They have narrow and stable product market domain. They don’t need to make any adjustment in technology, structure or methods of operations etc. They devote entire attention on improving existing operations. Because of emphasis on skill building successful defenders use appraisals as means for identifying training needs. It is more behavior oriented.
Prospectors: They continuously search for new products and opportunities. They experiment regularly to new and emerging trends. They more focus on skills identification and acquisition of human resources from external sources prospectors often use appraisals for identifying staffing needs. The focus is on results.
Analyzers: They operate in two type of product domain markets. One is stable and other is changing. They watch their competitors closely and rapidly adopt the ideas that are promising. They use cost effective technologies for stable products and matrix technologies for new products. Analyzers tend to emphasize on skills building and skills acquisitions and employ extensive training programs. Hence they use appraisal more for training and staffing purposes.
However performance appraisal systems has strategic importance in three different ways.
Feedback Mechanism: Performance evaluation is the central mechanism that not only provides feedback to individuals but also aids in the assessment of the progress of organization as a whole. Without appraisals managers of any firm can only guess as to whether or not employees are working towards realization of the organization goals.
Consistency between strategy and job behavior: Performance appraisal not only is a means of knowing if the employee behavior is consistent with the overall strategies focus but also a way of bringing to the fore any negative consequence of the strategy – behavior fit. Thus the performance appraisal system is an important mechanism to elicit feedback on the consistency of the strategy – behavior link.
Consistency between Values and Job Behavior link: Performance evaluation is a mechanism to reinforce values and culture of the organization. Another importance is to align appraisal with organizational culture.
Thus the purpose of performance evaluation is to make sure that employee’s goals, employees behavior and feedback of information about performance are all linked to the corporate strategy.
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